• Considering an SBA Loan

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    First Citizens Federal Credit Union

    Thinking of starting a business?

    The number one question consistently  asked  by  any entrepreneur regarding financing needs is, will I qualify for  financing.

    Start up, cottage industry businesses, where the entrepreneur has minimal cash injection and limited experience should give serious consideration to the U. S. Small Business  Administration,  (SBA),  as  a funding program resource for their financing needs.

    While  the  SBA  itself  does  not have  money  to  make direct  loans ,  it  does provide  incentives  to  financing sources  such  as banks, credit  unions and  other lenders who have partnered and been approved by the SBA.

    The SBA incentives provided  to  the  lending  institutions are established  as  a  sliding  scale  guarantee  in accordance  with  the  loan  program  utilized  in  the  loan  application  process.  The guarantee range can be anywhere from 50% to 85% of the face amount of the approved loan. The sharing of the risk related to the funding  request is  a  true  enhancement  to  the  qualified  and  approved  lending  source  to  consider  the  loan approval.

    The guarantee provided is a support mechanism to augment small businesses with limited cash, collateral  and  or  experience  thereby  providing  an  increased  opportunity  to  financing  that  would  not  be available without the utilization of the SBA loan programs.

    SBA lenders consider loans to struggling and thriving businesses as well as seasoned operations and start up ventures. There are many benefits to in the utilization of the SBA loan programs.  The include  the following:

    –          Lower capital requirements. SBA does not require points or endorse balloon payment loan structures

    –          Longer amortization periods sometimes up to 25 years dependent upon the loan program

    –          Higher acceptable loan-to-value financing, up to 90% in some cases

    –          SBA loan proceeds can be  used for nearly any of your business needs. This includes marketing expenses, machine  upgrades,  purchasing  of  inventory,  regular  operating  expenses  like  salaries  and  utilities,  debt refinancing, and facility renovations to name a few options.

    The majority of for-profit businesses potentially qualify for an SBA loan. There are unqualified loan purposes and those are clearly identified on the SBA website. The SBA loan programs are viewed as a direct support incentivized initiative to create, assist, grow and maintain the small business economy which is the backbone of the American economic system. The retention and growth of jobs within our economy is essential to our success as a nation.

    Any  entrepreneur  needs  to  have  a  vested  financial  stake  in  the  underlying  business.  This is the core to growth.  If  you  believe  in  your  ability  to  establish  and  or  expand  your  existing  business  entity  and  the business results are reflected within the financial framework or projections then your well on your way in the approval process.

    There are a series of contingent and positive achievements you need to identify in the application process. Some of these are excellent personal credit scores, good character, a cohesive business plan, financial performance  and  or  projections  evidencing  the  ability  to  operate  profitably  with  capacity  to  meet  the required repayment terms, (debt service).

    Be sure  to  identify  the  purpose  of  the  financing request,  the  proposed  collateral  offered  to  secure  the borrowing and the ability to meet your financial obligations.

    As a quick reference some of the SBA Loan Programs available through approved lending institutions are:

    –          7A Program – Business purchase/expansion/working capital/equipment, etc,  SBA Guaranty up to 85%

    –          SBA 504 – Is for real estate acquisition / lower cash injection / up to 90% LTV 

    –          Express – Debt refinance  / line of credit having an SBA guaranty up to 50%

    –          Patriot Express – Expedited qualification for military personnel retired / honorable discharge.

    It is recommended that any interested entrepreneur research these loan program options  because they can certainly enhance the approval opportunity.

    For more information, contact your preferred credit union or financial institution and visit the SBA website for a much broader explanation as to specific loan programs, requirements and required documentation.

    May 14, 2014